Mergers and product quality: Evidence from the airline industry |
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Institution: | 1. Department of Economics, University of Colorado Boulder, Boulder, CO 80309, United States;2. Department of Economics, Kansas State University, 322 Waters Hall, Manhattan, KS 66506, United States;1. Department of Economics, Kansas State University, 327 Waters Hall, Manhattan, KS 66506, United States;2. Department of Economics, LeBow College of Business, Drexel University, Philadelphia, PA 19104, United States;3. Department of Economics, Finance and Quantitative Analysis, Brock School of Business, Samford University, Birmingham, AL 35229, United States;1. Department of Economics, University of California, Irvine, United States;2. Departament d’Economia and CREIP, Universitat Rovira i Virgili, Spain |
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Abstract: | Retrospective studies of horizontal mergers have focused on their price effects, leaving the important question of how mergers affect product quality largely unanswered. This paper empirically investigates this issue for two recent airline mergers. Consistent with the theory that mergers facilitate coordination but diminish competitive pressure for quality improvement, we find that each merger is associated with a quality decrease (increase) in markets where the merging firms had (had no) pre-merger competition with each other, and the quality change can have a U-shaped relationship with pre-merger competition intensity. Consumer gains/losses associated with quality changes, which we monetize, are substantial. |
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